1. Opening and Closing balances of cash and bank a/cs in receipts and payment account must be excluded.

2. Capital receipts and capital expenditure must be excluded.

3. Only revenue receipts pertaining to the current year should be taken to the credit side of income and expenditure account. Due adjustments should be made for income received in advance income accrued for the current year and for the amount relating to the previous year or years.

4. Similarly revenue expenditure relating to the current year only must be taken in the debit side of income and expenditure account. Adjustment must be made for outstanding expenses of the previous year and current year and for the prepaid expenses of the previous year and current year.

5. Any income or expense relating to specific fund must not be taken to income and expenditure account.

6. Non – Cash items such as bad debts, depreciation, loss or gain on sale of assets etc. which are not recorded in receipt and payments account must be recorded in income and expenditure account.

7.The balancing figure of income and expenditure account is either surplus or deficit and will be transferred to capital fund in the balance sheet. If the total of credit side of income and expenditure account is more than the total of debit side (excess of income over expenditure), the difference represents surplus. If the debit side total income and expenditure is more than the total of credit side), the difference represents deficit.